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Ian Curley, CFO of Dublin-based Smurfit Kappa Group, has it better than most of his peers. Like many of the other companies in the ISEQ 20 — the Irish Stock Exchange’s benchmark index — SKG, a $9.3 billion packaging firm, has managed to survive Ireland’s economic meltdown by outgrowing its home market. Today, markets in other European countries and Latin America have become far more important to both its top and bottom lines. What’s more, he says, “90% of our funding comes from outside Ireland.”

But after three years of recession in their home country, Corporate Ireland’s CFOs — even those in the ISEQ 20 — can’t ignore the beating the country has taken since the global economy hit the rocks in 2008. Ireland’s spate of reckless bank lending, shoddy regulatory oversight, a bursting property bubble, and dangerously high levels of government debt are taking their toll, with little relief in sight. Irish taxpayers are facing several more years of belt-tightening, thanks in no small part to the near-blanket guarantee their government gave to the senior bondholders of Ireland’s six domestic banks on September 30, 2008 — “the blackest day in Ireland since the civil war broke out,” according to Michael Noonan, Ireland’s minister of finance.

Since that watershed moment in 2008, the bad news has kept coming. Moody’s Investors Service downgraded Ireland’s sovereign debt to a notch above junk status, and kept its outlook negative. The rating agency said that despite the €70 billion rescue deal the country put in place late last year, there are concerns that the country will need further austerity measures. It also warned that the government’s financial strength could decline further if economic growth is weaker than expected, or if fiscal adjustments falter. And although Ireland’s Central Bank forecasts modest GDP growth (0.9% in 2011 and 2.2% in 2012), employment is expected to continue falling. In seasonally adjusted terms, the unemployment rate increased from 13.7% in the third quarter of last year to 14.7% in the fourth.

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It’s a dramatic turn of events for a country once hailed as Europe’s roaring “Celtic Tiger,” and one that offers a snapshot of the new, unexpected complexity facing CFOs around the world today. Many finance executives seeking new manufacturing or back-office sites overseas might now see once low-risk countries like Ireland in a different light.

But a second look might reveal reasons to embrace the country rather than avoid it.

“Ten years ago, everyone was running to Ireland,” says Scott Davidson, CFO of California-based Quest Software, who years ago helped a previous employer set up an Irish shared-services center (SSC). “There are political and economic risks now that weren’t there then; the economy is a lot more complex; and there are other factors at play, including the shift to the euro.”

But Davidson isn’t complaining. A year after that “blackest day” Noonan cited, Davidson developed a short list of countries in which Quest might locate an SSC, and Ireland made the cut. Among the factors in its favor: a government more eager than ever for new employers and investment.

Ireland won the business, and by 2013 a new SSC employing 150 will be up and running in Cork. As Davidson sees it, “Based on the current economic state of every country in the world, none is such a shining star that you can say, ‘I absolutely want to go there because I don’t see any risk.'”

Then and Now

In the late 1990s, when Ireland’s popularity as a destination for multinational investment took off, its relatively low corporate tax rate (currently 12.5%); abundant and highly educated, multilingual workforce; and business-friendly environment attracted many companies, particularly those looking to open SSCs.

Then Ireland began losing its luster with foreign businesses — and not just because Poland, Hungary, and a number of other, cheaper European countries began stepping up efforts to attract international investments, says Jan Siemons, Netherlands-based managing partner of Buck Consultants International, a site-selection advisory firm. With more and more businesses piling into Ireland, competition for land and labor began to intensify. Eventually, according to EU statisticians, Ireland became second only to Denmark in terms of average gross hourly wages among the EU’s 27 member states, at almost €21 per hour. Property prices soared, and Dublin’s tony Grafton Street surpassed rivals in Hong Kong and London on the list of most expensive retail locations in the world.

With the bursting of the real estate bubble, says Fergal O’Brien, senior economist of the Irish Business and Employers Confederation (IBEC), “we’re now pricing ourselves back into the market.” The country is rediscovering its former growth engine — exports. Recording its highest-ever level, the value of exported goods and services reached €161 billion last year, up nearly 7% over 2009, according to the Irish Exporters Association.

Meanwhile, according to the EU’s statistics agency, the euro area’s hourly labor costs in the fourth quarter of last year were 2% higher on average versus the prior year, while Ireland’s declined by slightly more than 1%. From 2008 through 2012, Ireland’s unit wage costs will fall about 9%, while increasing nearly 4% on average across the euro zone. As for real estate, property adviser Cushman & Wakefield says prime rents fell across Ireland by almost 20% last year.

The adjustment, while a painful systemic shock for Ireland, is a silver lining for newcomers like Quest, says Davidson. “Now is not a bad time to go there if you’re looking for opportunity,” he says. “Clearly, the Irish economy is a red flag, [but] there are a lot of highly educated people looking for work.”

A Two-Track Economy

While Ireland can’t begin to compete with the likes of China, India, and Brazil as a hot spot for corporate growth, it is attracting foreign investment ranging from new manufacturing sites to service centers like Quest’s. “We’ve actually had the best flow of FDI [foreign direct investment] that we’ve had in about six or seven years,” says Barry O’Leary, CEO of Ireland’s Industrial Development Agency. “The domestic economy may be flat, but the typical multinational doesn’t come to Ireland to service the domestic market.”

As an example, he cites two of the world’s largest pharmaceutical firms, Merck and Eli Lilly, both of which recently chose to locate SSCs in Ireland. Merck now has a team of 150 in Dublin, while Eli Lilly is hiring 100 staffers in Cork, O’Leary says. Meanwhile, last January, semiconductor giant Intel announced a $500 million investment plan at its technology campus in Leixlip, County Kildare. O’Leary also cites PayPal, Google, LinkedIn, and Amgen as other foreign firms ramping up hiring at their facilities in Ireland.

At the height of the economic turmoil last year, California software firm McAfee expanded its presence in Ireland, where it has had a location since 2004, says Tim Daly, director of operations for Europe, the Middle East, and Africa (EMEA) and Asia-Pacific. McAfee, whose acquisition by Intel was completed this past February, opened a new facility in Cork, which now has nearly 300 employees responsible for much of the company’s international operations, including global localization; and finance, procurement, operations, and logistics for EMEA and Asia-Pacific.

Wasn’t McAfee tempted to decrease, rather than increase, its exposure to Ireland given the country’s woes? That would be shortsighted, says Daly. “There’s almost a two-track economy. While it’s obviously tough in other parts of the economy, the multinationals and IT firms have pretty much come out of the recession unscathed,” he says.

As for Quest’s Davidson, he acknowledges that geopolitical and economic risks are now a larger part of the equation when sizing up any European country. But he is mindful that while prospects look rosier at the moment for many of the EU’s newer member countries, such as Poland, “the history of the current political regime is not as long-standing as in Ireland,” he says. “I can’t know what will happen in 20 years in Poland or Ireland. I do know that Ireland has had issues. The question is, how are they confronting those issues, and are we comfortable with how they are confronting them? So it’s a decision about not only where it’s going to be in 20 years, but also where it has been in the previous 20 years.”

Stressed Out

It’s hard to know whether the worst is over in Ireland or whether the environment for multinationals will continue to be a positive one. The latest banking stress test, conducted in March, found that Ireland’s ailing banks need another €24 billion in cash, requiring them to remain under state control for the near term. The worst-case scenario painted by New York–based investment managers BlackRock Solutions, which Ireland’s government hired to conduct the stress test, presumes that the country’s real estate market will continue to sink for the next two years, resulting in thousands of home foreclosures.

Employment, too, is something CFOs — local and foreign — are watching closely. The hardest-hit sectors are financial services and real estate, which fueled Ireland’s so-called casino-capitalism years under the government that was ousted in March. Among the most spectacular casualties is Allied Irish Bank, which in April announced plans to reduce head count by 2,000 from the current 14,000 over the next two years, after reporting a record €10.4 billion net loss on continuing operations in 2010.

All this weighs heavily on Irish households. As a result, there is growing concern that Ireland’s workforce will shrink as it did in the late 1980s, when many Irish left the country to find work abroad. The Economic and Social Research Institute, a Dublin-based think tank, says some 60,000 Irish emigrated in 2010, and another 40,000 will leave this year. The new government, under center-right Fine Gael Prime Minister Enda Kenny, pledged in March to get 70,000 people off unemployment benefits in the next 18 months through education and jobs-subsidies programs, a move some are applauding as a welcome change. “The previous government was preoccupied with the problems of public finance and the banking sector,” says IBEC’s O’Brien. “It didn’t focus on what was happening in the real economy, and taking measures to get people back to work.”

But even with the government’s avowed focus on the “real” economy, “there’s still a lot of uncertainty,” says Dermot Mulvihill, group finance director of the Kingspan Group, a $1.7 billion Irish building-materials company that is among the ISEQ 20. “There’s a lack of financing for businesses and individuals and a very big stock of unsold housing. We have an awful lot of things to tackle, like the budget deficit and the huge debt of the banks.” But, he adds, “[with] the fact that we have a new government now, the atmosphere has changed.”

Yet the Celtic Tiger is unlikely to roar again any time soon. Mulvihill points out that in 2005, Ireland accounted for 18% of Kingspan’s revenue, or about €200 million. Last year, revenue in Ireland was about €60 million, only about 5% of group worldwide sales. “When I’m modeling in terms of the group, with a time frame of three to five years, it looks very unlikely that much of that will come back, which is why we have moved to a geographically diversified model where 95% of our sales now come from outside of Ireland,” says the finance chief, who plans to retire later this year.

Can multinationals pick up the slack? Possibly. Quest’s Davidson says a growing number of companies like his are getting ready to go to Ireland. As far as the Irish government is concerned, the welcome wagon is fully stocked and ready to greet them.